Refinancing Your FHA Loan When You Have an Existing Second Mortgage

Find out how to refinance your FHA mortgage loan on a second mortgage

Do you have a first mortgage loan with a value with a mortgage balance less than 96.5% of the current value of your home?

Do you also have a second mortgage that combines with your first mortgage so that you now owe more than your home is worth?

If you answered yes to both of these questions, the good news is that you actually can refinance your first mortgage loan while leaving your second mortgage in place. The only catch is that the second mortgage holder needs to agree to what is known as a re-subordination.

While the FHA mortgage refinance program does not permit borrowers to refinance more than 97.75% of their home's current value like Fannie Mae and Freddie Mac now do for borrowers whose loans they own, borrowers using the FHA refinance program are allowed to have a second mortgage of any amount.

What if I have an existing FHA Mortgage Loan?

If you have an existing FHA mortgage loan, the easiest way to refinance your FHA mortgage is to apply for an FHA Streamline Refinance loan. While requirements for this program will be changing (i.e. becoming stricter), borrowers can still get their loan refinanced under this program with almost no credit requirements and in many cases no appraisal. If you do not qualify for an FHA streamline refinance program, then you still may be eligible for the FHA refinance program permitting unlimited second lien amounts.

For example, say you bought a home ten years ago for $150,000, put 5% down and now have a first mortgage balance of about $135,000. When real estate values were high, your home went up in value to $250,000 and you took out a second mortgage for $50,000. But now prices came back down to the original $150,000 value from when you purchased. As a result, your $135,000 first mortgage loan plus your second mortgage for $50,000 means your total debt on your home is over $185,000.

While the first mortgage loan is 90% of the current value of your home (which would normally be no problem to refinance), both loans combined are 123% of your home's value. In the past, the first and second mortgage combined would not be permitted to be more than 95% of the value of your home for almost any program.

Today, if your first mortgage loan is held by Fannie Mae or Freddie Mac, you would be able to refinance your existing $135,000 loan plus closing costs even with the 123% combined loan-to-value. If your loan is not owned by either of these agencies, however, you can use the FHA program to refinance under the following two conditions:

1. Your new first mortgage is no more than 97.75% of your home's current value.
2. Your existing second mortgage lender is willing to re-subordinate.

Where do I go to refinance my second mortgage?

Total Mortgage offers the FHA Streamline Refinance program, Fannie Mae DURefiPlus, Freddie Mac Relief Refinance as well as the FHA refinance with unlimited second lien program. Because Total Mortgage offers all of these programs, your loan officer can help you determine which of these refinance programs you qualify for and which is best for your specific needs. Your loan processor can also assist you with the process of obtaining approval from your second mortgage lender to re-subordinate their loan so you can refinance.

For a free pre-approval and mortgage interest rate quote for your FHA refinance with or without an existing second mortgage, please email us or call us at 1-877-868-2503.

To see the current mortgage rates, visit our Current Mortgage Rates page.

If you have any questions that you would like to get answered by our expert mortgage brokers, please email us or call us at 1-877-868-2503.

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